Hollywood would have you believe the best things come in threes. That's why it’s obsessed with making everything and anything a trilogy. In some ways, it’s the perfect way to tell the story of WeWork.
Act 1 is the departure, where the hero, Adam Neumann, receives a call to adventure — to elevate the world's consciousness (lol) — leaves their home and embarks on a quest.
In Act 2, the hero enters a new world where they face challenges and learn new things until they conquer their adversary and gain the object of their quest. In this case, Neumann taking WeWork to a valuation of $47 billion.
And in Act 3, the hero returns home bringing something that will help the community, thanks to the experiences they had and the wisdom they gained. Unfortunately, WeWork went off-script here.
Well, consider this my WeWork trilogy. In WeWorked, Until It Didn’t, I looked at how Adam Neumann instead destroyed his company, became filthy rich, and went out on the comeback tour, sucking up yet more VC dollars. In WeBroke, I wrote about the struggles the company has faced in its failed attempts to rehabilitate. And now, in the third act, we’re forgoing the Hollywood happy ending.
WeBankrupt
In a filing sent last Tuesday, WeWork sent a distress signal about the viability of its future existence. The company announced it had “substantial doubt” it would stay in business, adding it aimed to reduce its lease costs and other expenses, increase revenue and obtain “additional capital via issuance of debt or equity securities or asset sales.”
Part of the statement reads:
“As a result of the Company’s losses and projected cash needs, combined with increased member churn and current liquidity levels, substantial doubt exists about the Company’s ability to continue as a going concern.”
It’s no surprise. Late last year, Fitch Ratings had already downgraded the company’s long-term bonds to CCC, effectively a junk rating. On the back of this, the company was given six months to get in shape or risk being delisted from the NYSE. Since then, the stock price has dropped to $0.20 a share, down a staggering 96% for the year. The company’s market cap is now under $300 million, despite raising over $22 billion.
In truth, the writing was on the wall years ago. For starters, WeWork has never been profitable. Sure, neither are many startups, but it’s hardly a viable model. WeWork also had a disastrous, failed IPO, leaving the company in tatters. The subsiding of the pandemic has slashed demand for office space. There was the surprise exit of CEO Sandeep Mathrani in May. The company is facing lawsuits from office landlords. It's still bleeding money, suffocating under crippling debts, and locked into lengthy (and expensive pre-pandemic rates) leases that may have been justifiable in the frothy capital markets of a few years ago but now serves as a noose around its neck. To top it off, the current economic climate has cut into margins further.
I wrote in WeBroke that bankruptcy was a real possibility. Now it seems a certainty. But that doesn't come without consequence; while it may allow WeWork to restructure and rid itself of some assets and leases, the company rents nearly 18 million square feet of office space in the US, more than any other company. Any collapse of WeWork would undoubtedly have a ripple effect through the commercial real estate industry at a time when everything is so fragile.
But even if the company restructured in an attempt to limp along, it won’t solve the biggest problem — WeWork’s business model isn’t working. The landscape is far more competitive now, and the company has no USP to differentiate itself from its rivals (unless you count “the energy of We.”) As of June 30, WeWork had total liquidity of $680 million, compared to $2.9 billion in long-term debt and negative operating cashflow of $530 million in the first six months of 2023. Last year’s losses were over $2 billion. The year before that was $4.4 billion. It leaves serious doubts about its ability to stay afloat over even the next 12 months.
Should this sorry saga draw to a close, there’s only one winner in the collapse of WeWork — the so-called hero himself, Adam Neumann, who, despite destroying billions of dollars, left enriched beyond imagination when the board forced him out and somehow, with his reputation intact. But this tragic tale leaves a trail of losers in its wake. Who exactly? Well, almost everyone else; employees, shareholders, landlords, vendors, creatives looking for co-working spaces, and of course, ping-pong table suppliers, wave pool machine manufacturers and kombucha makers.
What you miss about Adam Neumann is that from the early stage VCs perspective, he succeeded. He successfully created an exit (the IPO) for WeWork. The VCs got huge returns on their investment. Not as much as they had hoped, but everyone wants more. The early stage VCs could care less whether the company ever had a viable business plan. Neither did Adam Neumann.
They are totally willing to go another round with with him. He's proven he can create huge exit value.
You focus on people like Adam Newmann. The real question is the people who actually leased WeWorks space. I believe many of them were ridding his "We" religion. I never understood the "We" concept. But that's because I think in terms of profitable companies, not just creating exit return.